BAT warns of threat to pounds 225bn US tobacco settlement

Click to follow
The Independent Online
BAT, the cigarette and financial services giant, yesterday warned that the American tobacco industry's $370bn (pounds 225bn) compensation settlement was in danger of collapse.

The deal only had a 50-50 chance of being adopted by the US Congress, it said.

Martin Broughton, BAT's chief executive cautioned that if Congress failed to adopt the proposals by November, when elections are due to take place, the "momentum" of the current discussions would be lost, potentially derailing the chances of an agreement for ever.

Mr Broughton also hinted that BAT would walk away from the deal if Congress tried to impose stiffer financial penalties on the industry. "We see no need, or much scope for flexibility," he said.

If the deal goes ahead BAT will put aside $1.7bn this year as part of a $10bn up front settlement for the industry, and will pay billions of pounds over the next 25 years funded by a sharp rise in cigarette prices.

BAT chose No Smoking Day to announce a 28 per cent fall in profits to pounds 1.8bn during 1997. The figures were marred by almost pounds 800m of exceptional costs including a pounds 258m provision to cover tobacco legal settlements in the US.

The group was also forced to put aside pounds 85m at Allied Dunbar for the pension mis-selling scandal, bringing its total provision to pounds 197m.

The plan to split off its financial services arm to form a new company with Zurich, the Swiss insurance group, this autumn will cost pounds 266m, about pounds 40m more than expected due to the cost of restructuring the groups debts and mounting advisers fees. The strength of sterling knocked another pounds 154m off profits. BAT's tobacco profits were also hit by the financial crisis in Asia which caused profits to slump to pounds 309m (pounds 356m). Demand for cigarettes in the region remains subdued.

The results disappointed the market, sending the shares down 20p to 631p and wiping more than pounds 626m off its market value.

BAT is continuing a strategic review of its Eagle Star insurance business where is has already cut 1,000 staff last year. Parts of the operation may now be sold, although BAT said it would not dispose of the whole business.